Woolworths buyback could benefit execs
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Chief Reporter
WOOLWORTHS` decision to repurchase 95,8-million of its own shares could have a significant influence on the remuneration of its directors.
The retailer last week announced details of its plan to buy back 10,92% of its total shares from shareholders for just less than R1bn, returning money to its shareholders with the proceeds it will get from successfully securitising its debtors book.
But the buyback will boost Woolworths` return on equity to 38% from about 25%, and lift headline earnings 3,9% above last year`s figures.
Considering that directors` performance bonuses plunged from R9,6m in 2003 to R4,48m last year, the boost on returns could be a welcome fillip when Woolworths` remuneration committee meets to consider the group`s performance.
Despite the drop in performance bonuses, Woolworths` executive directors were paid a total of R24m last year an 82% rise over the past two years.
Woolworths` annual report shows shareholder return and financial performance including return on equity are considered when it comes to awarding performance bonuses.
Explaining the deal last week, it said: `The current nature of funding of the substantial growth in Woolworths financial services operation has had an increasingly negative impact on Woolworths` return on equity. The return of capital to Woolworths shareholders will reduce Woolworths capital employed, with a resultant increase in its return on equity, with a likely corresponding positive impact on shareholder value.`
Woolworths financial director Norman Thomson said the share buyback would only have a `small impact` on the directors` performance bonuses for the current financial year.
`Obviously, return on equity is a small component of our long-term incentive scheme ... but the targets will be adjusted for this (buyback) scheme by the remuneration committee,` said Thomson. He said the drop in performance bonuses last year was largely because `relative to the targets we set, (the company) didn`t perform as well as it did for the year before`.
Profit after tax, which increased 38% in 2003, grew at a more subdued 21% for last year.
But Thomson said the securitisation process would help Woolworths use its capital more efficiently.
The 53% boost on Woolworths return on equity and the 3,9% increase in headline earnings due to the share repurchase will add some gloss to this financial performance and improve the prospect of higher bonuses for directors, who have already been doing well in recent times.
Woolworths shareholders seem to be behind the share buyback. Shareholders holding 70,64% of the group`s shares have confirmed in writing their support for the scheme.
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